Page Speed Insights said I can reduce the size of my background image by 25.2KiB (13% reduction). But I didn't understand how to do that. That was after I already ran it through Kraken to optimize it. I choose the lossy option which I think reduces it the most. So how do I reduce it by 13% more if Kraken can't do it?

There's a ton of ways to compress images, perhaps Google is using a different technique and thinks more can be done. My favorite for quick tasks like this is https://tinypng.com/ - drag and drop and you're done.

You can try a few others, just search around - but don't drive yourself crazy trying to match exactly what Google says.